Melrose Industries (LSE:MRO) and Airbus are both major players in the aerospace sector, albeit the former being much smaller than the latter. However, I also believe they’re both rather exciting value stocks, providing exposure to a fast-growing sector with secular trends contributing to strong expected earnings growth.
And by secular trends, I’m referring to rising global air traffic, a growing middle class, and surging demand for more efficient, sustainable aircraft. Advancements in digital technologies, artificial intelligence (AI) and automation are transforming manufacturing and maintenance, while defence spending and aftermarket services provide resilient long-term growth opportunities for the sector.
What’s more, both companies are executing ambitious growth strategies and, crucially, their forward-looking financial metrics suggest the market may be underestimating their long-term potential.
A future Rolls-Royce?
Starting with Melrose, the company’s transformation into a pureplay aerospace specialist is already showing results. In 2024, adjusted diluted earnings per share (EPS) surged 45% to 26.4p, with operating profit up 38% and margins expanding.
Management has set a bold, but achievable, target of more than 20% annual EPS growth through to 2029. Noting the starting point, this could lead us to adjusted EPS between 65.7p and 80.6p by then, depending on the growth scenario.
Even using 2023 as the starting point, EPS could reach 55.8p to 71.3p. With shares trading at 475p, this implies a forward 2029 price-to-earnings (P/E) ratio between just 5.9 times and 8.5 times. I’d suggest that’s remarkably low for a business with a strong economic moat and one with claims 70% of its revenue comes from products where it’s the sole producer.
Moreover, the forward price-to-earnings-to-growth (PEG) ratio also points to severe undervaluation. Using the forward P/E ratio of 13.7 times for 2025, and a 20% earnings growth rate, the PEG ratio comes in a 0.69.
Yes, the company’s carrying a significant amount of debt. — £1.3bn. And if things don’t go to plan, that’s a bit of a concern. However, even factoring in the debt, the PEG ratio’s significantly under one, and far below the global industrials sector average of around 1.8.
The stock might not grow 1,000% like Rolls-Royce has from its nadir, but it absolutely could surge. I think we just need to see some solid earnings beats (beating expectations) in order to gain the market’s attention.
Quality at discount
As for Airbus, which is listed in Europe, the financial story is one of steady improvement and growing shareholder returns. The stock currently trades at 24.6 times forward earnings for 2025. This falls to 20.2 in 2026, and just 17.6 by 2027 as earnings accelerate. Taking the forward P/E for 2025 and dividing it by earnings growth of 16%, we get a PEG ratio of 1.54. I don’t think that’s problematic considering its duopoly in aircraft manufacturing.
I’m sure investors will be keen to point out concerns relating to tariffs and even quality assurance. However for me, it remains a quality company with a strong net cash position — €11.8bn.
The bottom line
I believe both these stocks should be carefully considered by investors. I’m not the only bull either. Analysts currently see Airbus as undervalued by 13% and Melrose by 33%, suggesting meaningful appreciation in the near term.
